AF211 CH 4

  1. Cost management system (CMS)
    a collection of tools and techniques that identifies how management's decisions affect costs
  2. The primary purposes of a cost management system are to provide ... (3)
    • 1. cost information for strategic management decisions,
    • 2. cost information for operational control, and
    • 3. aggregate measure of inventory value and cost of goods manufactured (external reporting)
  3. Cost accountingWikipedia: Cost accounting has long been used to help managers understand the costs of running a business.
    that part of the cost management system that measures cost for the purposes of management decision making and financial reporting
  4. Cost accumulation
    collecting costs by some "natural" classification such as materials or labour
  5. Cost assignment
    tracing costs to one or more cost objectives
  6. CostWikipedia: In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore.
    • a sacrifice or giving up of resources for a particular purpose
  7. Cost are frequently measured by
    the monetary units that must be paid for goods or services
  8. Cost object/ojective
    anything for which a separate measurement of costs is desired

  9. 3 types of cost objectives
    Customers, Departments, Processing orders
  10. Direct costs
    can be identified specifically and exclusively with a given cost objective in an economically feasible way
  11. Indirect costs
    cannot be identified specifically and exclusively with a given cost ojective in an economically feasible way
  12. Managers prefer to classify costs as ...
    direct rather than indirect whenever it is "economically feasible" or "cost effective"
  13. Categories of manufacturing costs (3)
    • 1. Direct material costs,
    • 2. Direct labour costs, and
    • 3. Indirect production costs
  14. Direct material costs includes
    the acquistion costs of all materials that a company identifies as a part of the manufactured goods
  15. Direct material costs
    are identified in an economically feasible way
  16. Direct labour costs include
    the wages of all labour that can be traced specifically and exclusively to the manufactured goods in an economically feasible way
  17. Indirect production costs/Manufacturing overhead include
    all costs associated with the production process that the company cannot be traced to the manufactured good in an economically feasible way
  18. Product costs
    costs identified with the goods produced or purchased for resale
  19. Production costs first become part of ...
    the inventory on hand
  20. Production costs/inventoriable costs become ... only when the inventory is sold
  21. Period costs are deducted as ... during the current period without going through the inventory stage
  22. The manufacturer's cost of goods produced and then sold is usually composed of the 3 major categories of cost:
    • 1. Direct materials
    • 2. Direct labour
    • 3. Indirect manufacturing
  23. The merchandiser's cost od goods sold is usually composed of ...
    the purchase cost of items, including freight-in, that are acquired and then resold
  24. ABM is using ... to aid strategic decision making and to improve operational control
    the output of an activity-based cost accounting system
  25. Value-added cost
    the cost of an activity that cannot be eliminated without affecting a product's value to the customer - it is necessary
  26. Nonvalue-added costs
    costs that can be eliminated without affecting a product's value to the customer
  27. ABC systems are adopted for many reasons: (5)
    • 1. Set a product mix and estimate profit margins
    • 2. Determine the consumption of a company's shared resources
    • 3. Keep pace with new product techniques and technological change
    • 4. Decrease the costs associated with bad decisions
    • 5. Take advantage of reduced cost of ABC systems due to computer technology
Card Set
AF211 CH 4
midterm 2 study guide